Canada's cannabis fad has cost investors billions

Those losses are likely to continue and to deepen

Barely five years ago, with a lot of fanfare, the Trudeau Liberals legalized cannabis for recreational use in Canada. Almost overnight, a handful of companies emerged all claiming years of experience in the cannabis market and all enjoying enthusiastic reception from gullible investors who were persuaded that the pot market would emulate tobacco and alcohol and create major businesses.

Insiders made a mittful, while public investors took a bath. It is a story often repeated in Canada’s poorly regulated capital markets which permit nonsensical stories like the pot fad, cryptocurrencies and ESG funds to flourish with the seal of regulatory approval emblazoned on their IPO filings. The offering documents came with the usual disclaimers in small print but spared no effort to persuade investors these were the best ideas since sliced bread. I have never been all that impressed with sliced bread.

Today, a few of the companies continue to lure public investors despite their near collapses. Here is a list of companies comparing their highest market capitalization (in the glow of the public’s enthusiasm for the latest fad) to their market capitalizations today.

Canopy Growth - Once valued at $17 billion and now valued at $300 million. Constellation Brands invested $4 billion in Canopy Brands. Genius?

Tilray Brands - Once valued at $13 billion and now valued at $1.4 billion

Curaleaf - Once valued at $12 billion is now valued at less than $3 billion

Aurora Cannabis - Once valued at $9 billion and now valued at $170 million

Cronos - Once valued at $6 billion and now valued at $680 million

Sundial Growers - Once valued at $3 billion and now valued at $380 million

TerrAscend - Once valued at $2 billion and now valued at $600 million.

The total losses investors suffered on these seven names amounts to about $56 billion. A lot of fund managers, brokers, financial advisors and other agents made out well selling this crap to people who must have been smoking it when they made their investments.

I live in Collingwood, a Town in Ontario with a population of about 25,000 people. Collingwood has six pot stores with one more expected to open soon across from Starbucks. One pot store for every 4,000 people, or about 2,500 adults. It seems likely to me that most if not all of them are losing money. Margins at the retail level are around 30%, and even a small store needs one or two people and has to pay rent, maintenance, utilities, snow clearing, and so on. Break even sales must be somewhere around $300,000 a year, likely more.

Canadian government data disclose that an estimated 27% of Canadians over 16 years use cannabis. If so, that would be less than 700 residents of Collingwood. That raises the question whether there are 700 people living in my Town who spend at least $200 a month on pot? Maybe, but it makes driving in our relatively congested Town a bit riskier than I had thought.

One gram of pot in Canada costs about $12 according to our government. The Journal of Forensic Research says the typical reefer has less than 200 mg of cannabis so one gram is about equal to five reefers (assuming the pot is smoked). Anyone spending $200 a month on pot is consuming the equivalent of just over 80 reefers a month or two to three a day. The duration of the “high” from marijuana is between one and four hours according to medical experts. If the six pot stores in Collingwood are in fact breaking even, then at least 700 Collingwood residents are “high” three to twelve hours a day. Give that some thought when you buckle up your seat belt and drive to the stores on Hurontario Street.

I lost a daughter to drug abuse and I always ask myself why our political leaders think it appropriate to not only legalize drug use but also to effectively promote it with leftist policies that provide clean needles, safe spaces, medical assistance for overdoses and little criminal exposure for trafficking. Encouraging our kids to look to drugs for enjoyment rather than to become involved in sports, art, music, study and other productive uses of their time can’t be a positive influence on our society. About 8,000 Canadians - mostly young - died from opiod abuse in the past year and the number is growing.

Have we all lost our minds in addition to the billions of investment losses? Will our leftist governments and their policies lead to more young people dying prematurely from drug related causes? Seems likely.